Three years after the Durbin Amendment took effect, the law’s painful impact on the cost of selling soda, candy, newspapers, and other small-ticket items remains an issue. And things may stay that way unless the newly elected Congress acts after taking office at the turn of the year, observers say.
The problem is that Durbin, which capped debit card interchange for issuers with $10 billion or more in assets, did not foresee that the price ceiling could actually result in higher costs for low-value merchandise. This perverse effect actually happened with the interchange limits enacted by the Federal Reserve, which was charged with implementing the amendment.
While the Fed’s cap cut debit interchange roughly in half, its ceiling for regulated issuers, 21 cents plus a small allowance for fraud losses, is dramatically higher than the small-ticket rates merchants would otherwise pay. On a $1 candy-bar sale, for example, a regulated Visa card transaction costs 21 cents in interchange, but the same transaction on an unregulated card costs just 6 cents.
Not until about the $12 price level does the cap begin to result in lower interchange cost, assuming the Visa rate for small-ticket goods. Debit cards from regulated issuers account for about two-thirds of all U.S. debit cards in circulation.